Air India enhanced fuel hedging limits following the success in hedging its fuel exposure. Air India Management extended its hedging limits from 10% of its international uplifts to 25% effective Monday, 18 September 2006, following the approval of the Board. This would, therefore, give flexibility to the Company to hedge up to 75,000 barrels per day up from the current limit of 30,000 barrels.
However, the total number of barrels to be hedged would be limited to 7, 50,000 barrels a quarter. Air India has put in place a Hedging Cell managed by the Finance Department wherein on line / real-time positions are available in respect of swaps and options available for hedging.
Air India commenced its hedging early this year and so far has been successful. Air India is examining to extend the range of derivative instruments by exploring futures and options as well as new counter parties and developing a broad based IT System.
M/s.Ernst & Young have been advising Air India till date on fuel hedging. The instruments used by Air India for risk management was plain swaps, zero cost collar with ratio spread and knock out options.
Air India's fuel bill during the year 2005-06 was of the order of Rs.3134.00 crores which constituted nearly 1/3rd of its total cost.
